MINDANAO AND IMPENDING LUZON POWER OUTAGES: A CAUSE OF CONCERNApril 08, 2013

MINDANAO AND IMPENDING LUZON POWER OUTAGES: A CAUSE OF CONCERN

Investment
grade, growing economy, improving infrastructure, real estate boom, and
foreign investors invading the Philippines. All of these should be
easier for the government to lure investors in the country and it seems
the Philippines is not getting tired in its quest to become a new Tiger
in the region.

This may sound as good news to us but not-so-good news also.
Because of this euphoria, there are fears that a looming tight power
supply will happen next year, causing power outages in Luzon. Presently,
the island of Mindanao is already being affected by power outages due
to few hydro plants.

Senator Sergio Osmeña III said he doesn’t sees brownouts
this year but he sees a tight power supply in Luzon next year and this
may cause power outages because the growing economy is hiking up demands
for electricity. The power outages will be caused by power reserves
that are too thin.

Real estate boom in Metro Manila increased the demand for
electricity. The Senator said “That consumes power and that was not
planned three to four years ago. That’s a good thing for us. That’s why
we always want to build a reserve just in case we grow faster, just in
case there’s an unforeseen breakdown, we will have another plant to kick
in and supply the power so that there would absolutely be no
interruption in power.”

The
co-chairman of the Senate’s Joint Congressional Power Commission said
that putting up more power plants will help mitigate the tight power
supply, which he forecasted to be felt in 2014-2015. Then a little
better in 2016 until it becomes enough on 2017-2018.

He is wary of the environment activists that will protest in
putting up more coal power plants and cause delay in developments.

He cited that the only big power plant is GN Power Ltd.’s
600-megawatt coal-fired power plant in Bataan and expressed hope that
the Redondo Peninsula Energy Inc.’s 600-MW coal-fired power plant in
Subic Freeport would no longer encounter any problems. Expansion of
other power plants in Batangas, Quezon, and Zambales can also help.

Mindanao, considered before as fruit basket of the
Philippines, is home to the poorest regions and conflicting areas. It
can use the investment opportunities the country is gaining to provide
jobs and livelihood opportunities, end poverty, stop conflicts and bring
peace.

But sad to say, investors are shunning away this southern
part island not only due to conflicts and problems but also to power
outages in which the Department of Energy warned that it may last until
2015.

Power outages in Mindanao are due to rising demand and that
the Lanao Lake, where the hydro plant sources water, dips down
especially during the summer. They also blamed the power outages on the
lack of power infrastructures in Mindanao.

An average of 8 hours of power outages a day affects the
provinces in Mindanao and Iligan City, Lanao Del Norte, and Misamis
Occidental even experiences 2 rounds of brownouts a day.

In order to improve electricity, people and industries in Mindanao has 2 choices: Higher power rates or no electricity at all.

As what mentioned above, Mindanao is home to some poorest
regions. So increasing electricity rates cannot be afforded by the
people.

National and local candidates in Election next month fears
of election fraud or glitches in PCOS machines if the power outages will
not be solved soon.

DOE Secretary Carlos Jericho Petilla said that “We have
projected that Mindanao will have additional power by 2015 as indicated
by committed projects in the region. The challenge now is how to address
the power situation from now until 2015.”

DOE will be helped by Mindanao Development Authority and other stakeholders.

The government needs to improve the electricity supply in Mindanao so investments will come pouring in.

The investors are not only complaining of power outages but
also the high electricity rates, which is the second highest in Asia
after Japan. Come to think of it. Japan is a small but a rich nation so
the power rate is high. The Philippines is bigger than Japan and not
that rich like Japan but its power rate is so high that a poor and
middle class families are affected.

It should be remembered that the nation’s capital and parts
of Luzon experienced exodus of investors back in 1990’s because of daily
brownouts that last 8 hours, and even lasting 10-15 hours if the power
outage is worse.

Experts
warned that this will happen again if the government will not do
anything to avert it. Once it strikes, the economy will be brought back
to scratch.

In an interview, Mr. Ramon CF Cuervo III stated the
importance of utilities such as water and electric power. “The increase
of land values and prices depends on several factors. The availability
of utilities and facilities are indispensable, particularly electric
power and water,” he said.

We interviewed Atty. Rey Cartojano of Mindanao-based,
Cartojano Realty on the effects of brownouts to the real estate industry
Mindanao.

“It may surprise many but overall and in the short term
period of 1-2 years, the current power outages in Mindanao do not
seriously affect the real estate industry in the island,” says Atty.
Cartojano, the company’s Managing Partner.

According to Atty. Cartojano, who is also the PAREB
Vice-President for Mindanao, he used terms ‘overall’, ‘short term’ and
‘seriously’ for the following reasons:

1. The two (2) biggest urban centers of Davao and Cagayan De
Oro Cities are not affected by these power outages. These areas we know
command a lot in the movement of real estate industry in the island,
especially if we speak of residential, commercial and tourism related
real estate. Cities far from the main power generation areas of
Northern Mindanao, like General Santos and Zamboanga, are the much
publicized areas hit by 2-4 hours of rotating brown outs.

2. Remember, the island was hit also by selective power
outages in 2012 in some areas especially during the summer season
months. The situation was still manageable as these areas hit by
seasonal power outages still registered very strong activities
especially in the real estate sectors.

When it comes to investments in Mindanao, “Predictably, new
investors will be wary of areas in Mindanao affected by the power
outages. On the other hand, this will be a very big opportunity for
areas not affected by the power outages to take hold of new investment,”
he said.

Atty. Cartojano said that
power generation, or a failure of it, is clearly a function of
government and governance. He cited the Philippines have laws passed
purposely to address the energy requirements of the country and that
the country have government policies to privatize power generating
assets in Mindanao but not sure if they will worsen or improve the
power situation if done without sufficient safeguards.

“The thrust of government
is to encourage more private investors in the energy power generation
sector, but this seems to be still more embedded in law that in
practice, he said. “And so, the biggest challenge now is how to
actualize this vision of encouraging the entry of the private sector in
power generation which many see as a solution to avert power crisis.”

The Cartojano Realty
operates one of the few full-service online real estate firms in the
country not only covering the traditional brokerage but also into
appraisal, consultancy and legal advisory work. Their faster growths in
the past were during periods of crisis and uncertainty when many fear
the immediate moment.

“The beauty of the
profession and business of real estate is that it can benefit you
depending on how you position yourself or your client in a particular
transaction. Our type of real estate practice is hence neutral whether
there is a boom or bust,” Atty. Cartojano said.

“Unfortunately, the
overwhelming majority of RESPs are into brokerage work which is highly
dependent on the boom cycle. If the power outages graduate into a full
blown crisis in the next two (2) years, which I seriously doubt, many
RESPs who are into brokerage work will definitely be affected”, he
added.